Rate fixation
Rate fixing at a cryptocurrency exchanger is the process of setting a fixed price for a certain cryptocurrency for a certain period of time. For example, an exchanger may set a fixed price for exchanging Bitcoin for USD for a certain amount of time so that customers can get a guaranteed amount when exchanging.
It may be useful for customers who want to protect themselves from the volatility of the cryptocurrency market, but it may not be profitable for the exchanger, as it may lose out on changes in market prices.
Rate fixation usually occurs for a short period of time and may only be available for certain cryptocurrencies and currency pairs. Often customers can choose whether to use rate fixing or exchange cryptocurrencies at the current market price.
A cryptocurrency rate fix means setting a specific price at which the cryptocurrency can be exchanged for other currencies or assets. Usually there can be several fixes:
- Fixing at the time of application, namely the exact time to the second when the client made the exchange.
- Fixing the rate at the time of payment for the request. In this case, the rate of cryptocurrencies is being fixed at the time of payment for the request, not at the time of execution. This is important to consider because the volatility of digital assets can change the final amount of the transaction.
In practice, fixing a profitable exchange rate for cryptocurrencies is often difficult, if not impossible, due to the decentralized nature of most cryptocurrencies. Unlike traditional currencies, which are controlled by a central bank or government, cryptocurrencies are often traded on decentralized exchanges that are not subject to the same regulatory oversight.
However, some stable coins, which are cryptocurrencies intended to maintain a stable value relative to another asset, have a fixed rate. For example, a Stablecoin may be linked to the U.S. dollar exchange rate, so that each Stablecoin is equal to one dollar. A stablecoin issuer may use various mechanisms, such as holding reserves of the underlying asset, to ensure that the stablecoin is tied to a target value.
Why is it necessary to fix the rate at a cryptocurrency exchanger?
- Simplification of the exchange process. When the exchange rate is fixed, customers know the price they will get for their cryptocurrencies in advance and can safely conduct transactions without the fear that the rate will change during the transaction.
- Protection against rate volatility. The rate of cryptocurrencies can fluctuate wildly depending on market conditions, which can be frustrating for customers who want to conduct a transaction at a certain time. Rate fixing helps avoid these fluctuations and reduces risk for both parties.
- Attracting customers. A fixed rate can be attractive to customers who are looking for the most favorable terms for exchanging their cryptocurrencies.
- Simplification of accounting. Fixing the rate can greatly simplify accounting and reporting for the exchanger.
- Increased customer trust. It can also increase users' confidence to the exchanger, as they will be assured that they will not be exposed to unpredicted financial risks.
It is worth mentioning that establishing a favorable exchange rate can have not only advantages but also disadvantages:
- Risks for the exchanger. If the rate of cryptocurrency changes in the market, the exchanger may lose money if they can't quickly sell the cryptocurrency by fixed price.
- Lack of liquidity. The exchanger may lack enough cryptocurrency to meet customer demand if the rate changes drastically.
- Unprofitable rate for customers. If the rate of cryptocurrency changes upward, the exchanger's customers may receive an unfavorable rate when buying cryptocurrency.
- Limiting development. A fixed rate can limit the exchanger's development and future expansion opportunities, as it can lead to financial losses and risks.
Cryptoexchangers from Exsoft supports functionality for rate fixing, both for automatic and semi-automatic (manual) exchanges. So your clients will always know at what rate they are exchanging cryptocurrencies.
It is important to remember that cryptocurrency rates are very volatile and the value of a given cryptocurrency can change drastically over a short period of time. Therefore, it is important to do thorough research and analysis before making any exchanges and be prepared for all sorts of outcomes.
